One month ago, we showed three prominent “red flags” that the US housing market was starting to roll over.
Among these were a report by real-estate advisory RealtyTrac, which cited by Bloomberg, said that “almost nine years after the housing-market bust helped trigger the most recent recession, RealtyTrac senior vice president Daren Blomquist sees the industry waving a red flag.” He was referring to house flipping by third party investors at auction which was back with a vengeance, and what’s worse, the share of foreclosures snapped up by inexperienced mom-and-pop buyers at auction had hit a record 31% in June. As he said, “this a redux of the same fervent speculation that pushed the housing bubble.”
The second warning came as a result of the latest sharp decline in spending on furniture and home goods stores, which according to Bank of America credit and debit card spending data, showed that the yoy drop had reached the lowest since the recession period. As BofA said then, “this shows that consumers have delayed spending on housing-related items, which could be a sign of weakness for the housing market.”
The third red flag was revealed in the then-latest Credit Suisse survey of real estate agents: “Our Buyer Traffic Index took a sizeable step back in June, slipping to 41 from 52 in May, indicating traffic levels decidedly below agents’ expectations…. Prospective buyers also continue to be deterred by a persistent shortage of affordable inventory across markets, with agents frequently highlighting buyer pushback to rising home prices. On the other hand, agents repeatedly mentioned that low mortgage rates were crucial to supporting demand.”
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Fast forward one month and we find that the adverse trends observed in early July have gotten progressively worse, and we can now add one more.
First, as we showed last week – and correctly warned that last Friday’s retail sales report would disappoint – the latest “BofA Internal Card Data Shows Significant July Spending Slowdown” showed in addition to another broadly week month of consumer spending, that “we are seeing a continuation of the theme that we flagged in last months’ report – sales at home improvement and home goods stores are weakening based on the BAC card data. After a brief gain last month, sales at home improvement stores tumbled in July, leaving sales down 3.4% yoy. Sales at home goods stores continue to weaken as the yoy rate reached a new cyclical low in July. We see a similar weak trend with sales at furniture stores.” As BofA said last week, this would be a key advance indicator that the US housing recovery has stalled.
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Second, following up to last month’s disappointing Credit Suisse survey of Real Estate Agents, for July the Swiss bank found even more of the same disappointing trends, noting that there has been “No bounce after last month’s pullback as buyers remain hesitant.”
This is what survey author Michael Dahl wrote:
Traffic Down Slightly: Our Buyer Traffic Index edged down 1 pt to 40 in July (vs. 41 in June), indicating traffic levels remaining below agents’ expectations following the June pullback. Our Weighted Traffic Index was also down 1 pt m/m. Agents broadly cited a lack of inventory in many markets, particularly at affordable levels. Incrementally, buyers seemed more resistant to higher home prices with some willing to move to the sidelines. Consistent with last month, many buyers also remain hesitant and cautious due to broad economic concerns. Quite a few agents were surprised how quickly demand faded through the Summer, suggesting some payback following stronger Spring trends. On the other hand, many agents noted that favorable mortgage rates continue to support demand, though still not much of an urgency factor. In many markets, comments still pointed to sluggish high-end trends vs. healthy demand at lower price points. Regionally, the Pacific Northwest slowed and now sits in-line with national averages. Parts of Texas and the Southwest improved, while the Northeast, Midwest and California all worsened.
More Markets Fall Below Expectations: In July, 7 of the 40 markets we survey saw higher than expected traffic (8 in June), 4 saw traffic in-line (7 in June), and 29 saw lower than expected traffic (25 in June). Portland, Seattle and New York experienced sharp declines. In TX, Austin deteriorated and Houston remained challenged, offset by improvement in San Antonio and Dallas. FL markets remain depressed, led by weakness in Miami, Fort Meyers and Sarasota. California was dragged down by lower readings in Los Angeles and San Diego, while San Francisco ticked higher. Las Vegas and Minneapolis were both strong.
Prices Move Higher, but Less Broadly than in Recent Months: Our Price Index slipped 5 pts in July to 66 from 71 June, indicating broad price appreciation. Despite the choppy traffic and growing buyer price sensitivity, tight supply has thus far continued to favor sellers. Of the 40 markets we survey, 28 saw higher prices in July (34 in June), 10 were flat (3 in June) and 2 declined (3 in June). Strongest readings were seen in Dallas, Raleigh, Seattle, Austin, Kansas City, Los Angeles and Charlotte. Houston prices continue to face pressure, declining for the third consecutive month.
Summary: if the real estate agents, those who are most familiar with the nuances of the housing market, are this gloomy,
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Finally, the third red flag was revealed today when the Mortgage Bankers Association reported that mortgage demand to buy homes just hit a new 6-month low, despite mortgage rates hovering near all time lows.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage activity for home purchases, a leading indicator of housing sales, fell 4% in the week ended Aug. 12, according to Reuters. This took places despite the average rate on “conforming” 30-year home mortgages, dipped to 3.64% last week from 3.65%, the Washington-based group said.
The average 30-year rate touched 3.60 percent in the week ended July 8, which was the lowest since May 2013 and not far from the historic low of 3.47 percent struck in December 2012, according to MBA data. Weekly mortgage activity on home purchases reached an eight-month peak in early June before a decline since even as 30-year mortgage rates hovered near their lowest in over three years.
This suggests that even with near-record low mortgage yields, demand for new home purchases is simply not materializing, and indicates that in addition to a potential lack of supply problem (as per the Credit Suisse report), there is also not enough demand.
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Ironically, as the Fed remains desperate to push rates higher (but not too high) to signal a recovery, the direct impact would be to make housing even more unaffordable for most buyers who, if CS is correct, are increasingly on the fence about jumping into a purchase; it would also result in an even faster drop in demand for mortgage purchase applications, leaving on “all cash” buyers on the margin of housing demand.
Which, as we asked one month ago, begs the (repeat) question: has the Fed thrown in the towel on reflating US housing – the one asset in which the US middle class has historically invested the bulk of its net worth – and is now focusing solely on the S&P which remains the playground of the 1%? If so, the surge in populist anger witnessed around the globe in the past year is certain to get even worse in the US, just as racial and class tensions in the country have never been worse, as the Fed gives up on America’s middle clas.
via http://ift.tt/2bni4BP Tyler Durden